The chief executive of the California High-Speed Rail Authority – former Caltrans director Jeff Morales – is resigning in June from the agency after five years overseeing the state’s $64 billion bullet train project.

The announcement Friday prompted Gov. Jerry Brown and others to praise Morales for leading the authority during a contentious period in which it managed to break ground on the bullet train’s system initial 118-mile segment but struggled to find funding that would actually allow for construction of a statewide network. That’s what voters were promised in 2008 when they approved Proposition 1A, which provided $9.95 billion in bond seed money to a project then estimated to cost $43 billion.

But the timing of Morales’ departure could lead to a melancholy final two months on the job for the rail executive if House Republicans get their way. House Majority Leader Kevin McCarthy, R-Bakersfield, and the other 13 California House GOP members have launched a several-pronged front to try to get the Trump administration to prevent already-committed federal dollars from ever being spent on the project.

Their most visible effort came in February. That’s when their lobbying was seen as prompting Transportation Secretary Elaine Chow to put on hold a promise made late in the Obama administration to provide $647 million to electrify tracks in Silicon Valley leading to San Francisco – a crucial part of the governor’s plan to have a “blended” system of high-speed and regular rail.

Key Obama administration decisions could be rolled back

But California House Republicans also want to “claw back” some of the funding and procedural decisions in Washington made related to the project. This push received an unexpected boost in the final weeks of the Obama presidency when a confidential Federal Railroad Administration report was leaked to the Los Angeles Times. It predicted the first segment of the bullet train that the rail authority had long said would cost $6.4 billion could instead cost $9.5 billion to $10 billion.

Based on this evidence of dubious management and on the rail authority’s inability to attract investors – raising questions about financing – the U.S. Transportation Department appears to have grounds to rescind decisions made in 2009 and 2012 that enabled the project to end up getting about $3 billion in federal funds.

The 2009 decision was the original DOT move to make the California bullet-train project eligible for federal funding from the massive omnibus stimulus bill adopted soon after President Obama took office. The decision required an analysis concluding the project was properly funded and had responsible and thorough planning that substantiated expectations of success.

The 2012 decision was in the form of an agreement that allowed California to bypass the tradition of state and federal infrastructure projects being jointly funded on a dollar-for-dollar basis. Instead, California was allowed for at least three years to get an advance on federal dollars in return for guaranteeing eventual matching funds – totaling $200 million as of June 2015. The federal government has the authority to demand the state match what it has already spent before allowing another dollar to go California’s way.

Is new state law a tweak or a ‘material’ change?

A revocation of these bullet-train-friendly decisions isn’t the only possible twist that Morales faces in his final two months on the job.

Central Valley farmer John Tos, Kings County, the city of Atherton and several other Central Valley groups – the same coalition that previously filed, with some success, legal challenges against the state project – may have their first hearing this week on a new lawsuit in Sacramento Superior Court. (A previous hearing scheduled for last week was delayed, so another delay is possible.)

The lawsuit challenges the legality of the December vote of the California High-Speed Rail Authority to authorize the selling of $3.2 billion in state bonds for the project under the authority granted it by Assembly Bill 1889, a measure by Assemblyman Kevin Mullin, D-South San Francisco, that was enacted last year. It loosened bond-spending restrictions in Proposition 1A, the 2008 measure funding the rail project.

Mullin and other Democrats depicted the change as a routine tweak in the law. Attorneys for Tos, Kings County and Atherton will seek an injunction against any sale of the bonds on the grounds that there is no provision in Proposition 1A allowing for it to be subsequently “materially” altered by the California Legislature.

“Traditionally, transportation projects of this magnitude can rely on the federal government as a funding partner with grants of up to 50 percent or higher. The Legislature and the voters of California, in approving Proposition 1A, assumed significant federal participation – 1/3 of the total cost. With a federal contribution for these extensions, its share of the total funding for the Silicon Valley to Central Valley line would still be only 25 percent of the total investment, far below the norm,” the report states in section 6, which details long-term funding strategies, assumptions and plans.

But based on what’s happened in Washington in recent years, the notion that “traditional” federal support for major transportation projects will help California secure more funding doesn’t seem grounded in reality. The prospect of Congress earmarking funds to help one state build a bullet-train network seems unlikely for two reasons.

‘Monumental waste of precious transportation dollars’

One reason is specific. House Republicans, led by Majority Leader Kevin McCarthy of Bakersfield, have been critical of the California project for years. They’ve cited the decision to give more than $3 billion in 2009 stimulus bill funding to the state as an example of wasteful stimulus spending and highlighted missed deadlines for starting construction. McCarthy co-authored a January 2015 op-ed for the Sacramento Bee spelling out his implacable opposition:

The current plan for high-speed rail is nearly twice as expensive as promised to California taxpayers. The projected travel times and fares have nearly doubled. The plan bears no resemblance to the one put before voters in 2008. One analysis after another has raised these red flags, but supporters in Sacramento refuse to admit that fundamental flaws exist and continue to press on, no matter the cost.

 

These objective reviews expose a business plan flawed at its core – unrealistic ridership numbers, a ballooning price tag (just last year, the California High-Speed Rail Authority increased its cost estimate for a Central Valley segment by $1 billion) and private investment that is still nowhere to be found. …

 

This is not what voters envisioned when Proposition 1A was presented to them. It is now clear that this project remains wholly unviable and is a monumental waste of precious transportation dollars that would be far better spent on roads, light rail and traditional heavy rail.

Since then, the California High-Speed Rail Authority has been unable to attract outside investors and doesn’t have even 40 percent of the money it needs to complete the initial 300-mile, $31 billion segment — much less the $68 billion needed to build a rail line linking San Francisco and downtown Los Angeles. This has led bullet-train advocates, starting with Robert Cruickshank of the California High Speed Rail Blog, to repeatedly urge Congress and the Obama administration to provide more federal dollars. In planning documents from three years ago, state officials said they were hoping on $42 billion in federal help.

But Republicans took control of the House in the November 2010 election, and they have repeatedly denounced the state’s project, led by Rep. Jeff Denham of Turlock. And the office of House Majority Leader Kevin McCarthy, R-Bakersfield, has confirmed there’s not a dime for the state’s bullet train in the gigantic, five-year, $305 billion transportation bill that Congress approved last week in an overwhelming bipartisan vote.

CA Democrats fought for bullet train funds in 2012

In 2012, during negotiations on a similar omnibus transportation measure, California’s House Democrats were strongly critical of the bill for, among other things, blocking new federal funding for the Golden State high-speed rail project. But Nexis and Google News searches show no similar pointed criticism of the new transportation bill. This 2013 analysis by Governing magazine shows why enthusiasm has waned among federal lawmakers:

In California … if the feds were to pony up the rest of the $42 billion the state is expecting, it would be more than the federal government spends nationwide on grants for new subway, light-rail and bus rapid transit lines combined. … At a time when Congress has canceled White House tours in order to reduce spending, it’s hard to envision Washington lawmakers making that sort of long-term commitment anytime soon. …

 

In a budget deal struck with Republicans in April 2011, the administration lost funding for its [high-speed rail] program, and it hasn’t come back since. … Meanwhile, despite all his calls for high-speed rail spending, Obama hasn’t developed a concrete proposal on how to provide an ongoing, dedicated revenue stream for those projects, which advocates say is key. Even the nonpartisan GAO warns that counting on future federal funding for projects like the one in California is highly speculative. Joshua Schank, head of the Eno Center for Transportation, says it’s unlikely at this point that the administration will continue to throw its full weight behind high-speed rail because so far the program “hasn’t yielded much dividend politically. Nor,” he adds, “has it yielded much in terms of high-speed rail.”

Cruickshank, however, thinks there’s a maniacal quality to GOP opposition. “To Republicans, of course, the risk to the taxpayer isn’t based in fact but in ideology. They believe nobody rides passenger trains in America, so any such attempt to fund one is doomed from the start. They mention that government might have to subsidize its operating costs and even though the global experience suggests they don’t, they’re ignoring the fact that government massively subsidizes roads without any expectation that they’ll cover their costs,” he wrote in 2013.

Nevertheless, aides to President Obama say he will sign the transportation bill, perhaps this week.

H.R. 2577 is the House appropriations bill determining financial support for all federally-funded transportation, housing and urban development projects. This includes the Federal Aviation Administration, Federal Highway Administration, Federal Railroad Administration, as well as other transportation and housing authorities across the U.S.

House Amendment 434, introduced by Rep. Jeff Denham, R-Calif., prohibits “the use of funds for high-speed rail in the State of California or for the California High-Speed Rail Authority” and also disallows any funds to be “used by the Federal Railroad Administration to administer a grant agreement with the California High-Speed Rail Authority that contains a tapered matching requirement.” The amendment was agreed to by voice vote during the H.R. 2577 floor consideration.

House Majority Leader Kevin McCarthy, R-Calif., released a prepared statement on Wednesday, praising the passage of the bill:

“This bill prioritizes projects to ensure tax dollars from hardworking Americans aren’t wasted on projects that don’t reflect today’s reality and tomorrow’s potential.

 

“In my home state of California where driving is essential to our daily lives, we know that some dollars spent on transportation are more effective than others. For example, it’s better to fix the roads and ensure rail safety than it is to waste millions on a high-speed rail boondoggle. That is why the House has routinely blocked federal taxpayer dollars from being wasted on California’s high-speed rail, helping to make sure we spend every taxpayer dollar in the most productive way possible.”

This decision comes on the heels of a 300-person protest at a meeting of the California High-Speed Rail Authority on Tuesday. According to the L.A. Times:

“During more than six hours of public comment by about 150 people, one speaker after another attacked the project as the eight-member California High-Speed Rail Authority board listened quietly. The testimony came from residents and leaders in small towns and growing suburbs along proposed routes through the mountains north of the Los Angeles basin. Many speakers said the project would devastate their quality of life or their local economy.”

Supporters of the high-speed rail included Palmdale Mayor James Ledford, who has called it a “game changer” for families facing a long commute home from their jobs in downtown L.A.

“We’re excited about being connected to where jobs are in Southern California,” said Ledford. “If not high-speed rail, then what?” Anaheim officials also stated their supportive comments during the meeting.

But opponents to the project point out the fact that voters are not getting what they were promised back in 2008. The San Diego Union-Tribune highlighted these concerns regarding the high-speed rail project in an editorial:

[I]f Richard and the CHSRA are sincere about addressing local concerns, it’s time they also sincerely address big-picture concerns, which hinge on legally binding promises made to state voters in 2008 to win passage of Proposition 1A. The measure provided $9.95 billion in bond seed money for the project.

 

One of those promises was that construction would not begin until all the money was in hand to build a route that could be self-sustaining if full project funding wasn’t available. The rail authority has never identified how it will pay for the $31 billion, 300-mile initial operating segment from Merced to the San Fernando Valley. Attorney General Kamala Harris declined to appeal the section of a broader Sacramento Superior Court ruling that concluded the state didn’t have a legal business plan.

There’s been another funding twist for the California bullet-train project. The Federal Railroad Administration has agreed to delay the due date for $180 million in state matching funds for the project from April 1 to July 1,  according to a press release from Rep. Jeff Denham’s office.

This gives Gov. Jerry Brown and the California High-Speed Rail Authority breathing room to work with the Legislature and try to convince lawmakers to allocate $250 million in state cap-and-trade auction revenues for the rail project.

Denham, a Turlock Republican, considers the move risky.  This is from his Feb. 21 press release:

“The Federal Railroad Administration [FRA] is protecting the Authority yet again and putting California taxpayers at greater risk. It has long been clear that the Authority would be unable to provide the funds required in their grant agreement. In December 2012, the FRA changed their agreement to allow for a tapered match rather than the standard concurrent match. Now they’ve changed the agreement again. With billions in federal taxpayer dollars on the line, what changes are next from the FRA? The American people – and Californian taxpayers – deserve to see their money used responsibly.”

But there are also additional important changes in the federal funding agreement outlined in the letter that rail authority CEO Jeff Morales released Feb. 20. The new funding contribution plan shifts a large amount of funding responsibility in coming years to the federal government, with a significant decrease in California’s contribution compared with the original plan, according to bullet-train financial expert William Warren. (Along with William Grindley, Warren has co-authored numerous briefing papers regarding rail-authority data.)

U.S. taxpayers at risk for single-state project

These changes leave the U.S. taxpayers in all 50 states with more exposure while pushing a troubled, legally questionable California state project forward.

The state has been receiving federal funds upfront for planning and environmental work for the past year, with the state’s required match delayed until later.  The original funding plan required a simultaneous match, according to a May 25, 2011, letter to the state from Roy Kienitz, who was then undersecretary of policy for the U.S. Department of Transportation. “On the matter of using federal funds up front to postpone use of the State’s matching funds, we hope you will understand why this is not feasible,” Kienitz wrote. ” Both the fiscal year 2010 appropriations law and the FRA grant commitments require matching funds as a prerequisite for this project to go forward.  California was awarded funding based in part on the impressive state match promised in the grant applications.  Withholding these matching funds would put the California’s high-speed rail project in serious jeopardy.”

Kienitz left the agency and, within a year, joined Parson Brinckerhoff, the primary consultant on the high-speed rail  project.  Shortly thereafter, in 2012, a revised federal funding plan — the fifth version — was published. It said the federal funds could be spent first and matching state bond funds could be spent starting in April 2014.

It had been expected that the rail authority would have access to state bond funds by April 2014, but two November  court decisions by Sacramento Superior Court Judge Michael Kenny dashed those hopes. The judge found the state had failed to meet its legal obligation under Proposition 1A to identify firm funding and complete environmental reviews for the entire initial operating segment of 300 miles before beginning construction. He also ruled the state could not begin selling state bonds funded by the proposition because they had not followed procedural safeguards related to bond sales.

State wants strings taken off some federal funds

Morales has also asked for a shift of $145 million in federal funds from construction to the planning and environmental category.  The feds had construction dollars in their funding agreement with the state, but the rail authority had to get specific permission to use those funds.  Judge Kenny’s rulings effectively halted the spending of state bond funds for construction, but they did not forbid the spending of federal funds — even for construction.

This request for the shift of funds might be because the Federal Railroad Administration usually releases grant funds as a project progresses, a little at time.  The authority is not ready for construction yet and needs more funds to move the project forward. It also has a lot of old bills to clear up — $63 million, it was revealed at the rail authority board’s Feb. 11 meeting.

In his letter to the FRA, Morales wrote that the authority does not anticipate using state Proposition 1A funds until July 1, 2015.  It is not explained whether that is because the authority doesn’t think it will need the state funds until then or because that’s when officials expect the funds to become available after legal challenges are resolved. But the American Recovery and Reinvestment Act of 2009 (ARRA) requires all federal funding to be used by September 2017 or the state will forfeit unspent funds.

While the governor wants to use cap-and-trade dollars as a state source of funding, only the Legislature can approve an appropriation. Many lawmakers appear to question the legality of using cap-and-trade fees for the bullet train.  Environmental groups also object.

Nevertheless, Dan Richard, chairman of the rail authority board, said at a Jan. 15 House transportation committee hearing that he had promising talks with environmental groups on using the cap-and-trade funds for the rail project.

Meanwhile, above and beyond the maneuvering on federal and state funding, the 3rd District Court of Appeal is now reviewing the Nov. 16 decision by Judge Kenny requiring the authority to rescind its funding plan. The appeals court is reviewing the ruling at the direction of the California Supreme Court, which was asked by the Brown administration to expedite a review of the ruling because of the administration’s contention that Kenny’s decision imperiled the project.